(Tiểu luận) midterm reportthe impact of fintech innovations on the bankingsector in vietnam

Benefits of partnership between Banks and Fintechs Trang 3 INTRODUCTIONHow people bank and execute financial transactions has drastically changed during the past ten yearsas the emergen

FOREIGN TRADE UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION

….o0o….

MIDTERM REPORT THE IMPACT OF FINTECH INNOVATIONS ON THE BANKING

SECTOR IN VIETNAM

Group 11

Nguyễn Thu Anh 2111210012

Nguyễn Thị Quỳnh Anh 2112250011

Nghiêm Minh Anh 2113250004

Nguyễn Hà Phương 2113250034

Nguyễn Minh Huy 2112250040

Dương Hải Yến 2113250054

TABLE OF CONTENTS TABLE OF CONTENTS

INTRODUCTION

CHAPTER 1 OVERVIEW OF FINTECH AND BANKING

1.1 What is Fintech?

1.1.1 Definition of Fintech

1.1.2 Fintech industry: history and growth

1.1.3 The domains of Fintech

1.2 The Banking industry

1.2.1 Definition of Banks

1.2.2 How Banks operate

1.2.3 The Banking sector in Vietnam

CHAPTER 2 FINTECH INNOVATIONS AND THE IMPACT ON THE BANKING SECTOR IN VIETNAM

2.1 The Covid-19 impact on Vietnam Fintechs and Banks

2.2 Issues in traditional banking systems leading to fintech revolution in Vietnam

2.2.1 Availability

2.2.2 Operational issues

2.2.3 Cost of transaction

2.3 Fintech trends, innovations and leading companies in Vietnam

2.3.1 Fintech market trends in Vietnam

2.3.1.1 Significant growth in Vietnam Fintech market

2.3.1.2 Digital payment is the leading segment

2.3.2 Fintech innovations in Vietnam

2.3.2.1 Blockchain

2.3.2.2 Artificial Intelligence (AI)

2.3.2.3 Gamification

2.3.3 Leading fintech companies in Vietnam in Digital payments

2.4 Fintech’s impact on Vietnam's banking industry: Cooperation or Competition?

2.4.1 Fintech benefits on the banking industry in Vietnam

2.4.2 Fintech challenges for the banking industry in Vietnam

2.5 The future of Fintech in Banking

CHAPTER 3 RECOMMENDATIONS FOR BANKS IN VIETNAM

3.1 Focus areas for banks to overcome competition from fintech firms in Vietnam

3.1.1 Enhancing current services

3.1.2 Focus on unexplored areas

3.2 Revolution of Banking in Vietnam: a partnership between banks and fintechs

3.2.1 How can banks and fintech companies collaborate

3.2.2 Banks and Fintechs partnership examples in Vietnam

3.2.3 Benefits of partnership between Banks and Fintechs

CONCLUSION

How people bank and execute financial transactions has drastically changed during the past ten years

as the emergence of fintech is responsible for this modification Fintech businesses were developed

by a lot of entrepreneurs in response to the 2008 recession, when banks and individuals were having difficulty, and they had begun to hunt for new solutions

Today, fintech is an expanding sector While financial technology has always advanced, it is arguablethat in the digital age, development has accelerated due to advancements in the internet, mobile communications, machine learning, and information gathering and processing technologies The waythat banks conduct business has changed significantly as a result of the emergence of new fintech companies that are providing cutting-edge technologies and services Fintech is not simply changing the financial environment but also putting traditional banks at risk Fintech businesses provide a wide range of services, including data analytics, investment banking, payments and wealth management

To stay competitive in the market today, banks must embrace the fintech revolution, or risk falling behind Banks may create new chances for growth and stay ahead of the curve by utilizing the benefits of fintech

This report focuses on clarifying cooperation trends for development of Fintech and the banking system The study uses secondary data from various sources, domestic and foreign research on Fintech activities The research results show that the co-development between financial technology companies and the commercial banking system is a major trend in the coming time

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CHAPTER 1 OVERVIEW OF FINTECH AND BANKING

1.1 What is Fintech?

1.1.1 Definition of Fintech

The combination of "financial" and "technology," or "fintech," refers to the incorporation of new technical developments into financial products and services Software, smartphone apps, and other technologies have been developed to enhance and automate conventional financial methods for both organizations and consumers FinTech can range from simple mobile payment apps to sophisticated blockchain networks that store encrypted transactions It describes the use of hardware and software

to speed up, simplify, and increase the security of financial services and operations

1.1.2 Fintech industry: history and growth

Fintech may appear to be a fresh wave of technology innovations, but the idea itself has been around for a while Since consumers no longer need to carry physical currency in their daily lives thanks to the invention of early credit cards in the 1950s, they are generally considered to be the first fintech products made accessible to the general public The development of fintech led to the inclusion of bank mainframes and online stock trading platforms One of the first fintech businesses to operate exclusively online, PayPal was established in 1998 This innovation has now been further transformed by mobile technology, social media, and data encryption

- FINTECH 1.0 (1866-1967): A tool called PEN TELEGRAPH was created in 1860 to allow banks to validate signatures According to historians, 1866 left the first authentic financial imprints The installation of the transatlantic cables in this year ushered in a period of building global network infrastructure and linkages Often, Fintech historians overlook Diner's Card in 1950 as a significant and life-changing Fintech 1.0 event Although the beginning was modest and restricted to restaurant payments, this was the first sincere attempt to make your payments cashless, and it set the path for future development In 1958, Amex introduced the credit card as a result

- FINTECH 2.0: Fintech 2.0 is seen as having started with Barclay's 1967 launch of the first ATM With the launch of NASDAQ as the first Electronic Stock Market, the fintech industryexperienced significant development It greatly modernized the IPO process and altered how bidding is conducted This is considered as one of the most important Fintech advancements

of all times Online banking and electronic commerce both developed in the 1980s For the first time, Tradeplus (E-trade) offered the E-trade to its clients in 1982 The development of e-commerce in the middle of the 1990s, which significantly increased the reliance on digital finance, was one notable development

- FINTECH 3.0: The creation of Bitcoin, the first cryptocurrency, in 2009 and the development of P2P payment networks in 2011 Since then, the western world has been producing numerous new innovations and unicorns BaaS, RegTech, Digital Lending, InsurTech, Wallets, and many other industries are experiencing everyday development and innovation

advancements, including, but not limited to, m-Pesa in Africa, Payment banks in India, and Alipay in China.

Fintech has evolved and grown throughout the years in reaction to changes in the larger technology sector This rise in 2022 was characterized by several dominant trends, including:

- Digital banking is more accessible than ever before, and it's still growing Via digital-first banks, many customers currently manage their finances, apply for and repay loans, and buy insurance The global market for digital banking platforms is anticipated to expand at a compound annual growth rate (CAGR) of 11.5 percent by 2026, suggesting that this sector will continue to rise as a result of how straightforward and convenient they are

- Blockchain: Decentralized transactions can be carried out using blockchain technology without the involvement of a government body or other third party Since several years ago, blockchain applications and technology have been expanding swiftly, and this pattern is anticipated to continue as more industries adopt high-tech data encryption

- Artificial Intelligence (AI) and Machine Learning (ML): These two fields of technology have transformed the way fintech businesses scale and the services they provide to customers Reduced operational expenses, increased client value, and fraud detection are all possible with AI and ML Expect these technologies to play a bigger part in the development

of fintech as they become more accessible and affordable, especially as more traditional banks convert to digital banking

Fintech in Vietnam: Fintech began a significant expansion in Vietnam in 2017 The government should establish a Sandbox, an experimental legislative framework, for fintech in the nation, according to the State Bank of Vietnam's proposal The majority of top-tier corporate executives are aware of how crucial it is to change with the times To stay relevant, businesses must develop to keep

up with customers' expectations, and fintech is the crucial tool of evolution for financial service organizations The number of fintech companies has quadrupled, from 39 at the end of 2015 to more than 154 by the end of 2021, according to the State Bank of Vietnam (SBV) and the Vietnam FintechMarket Report 2021 More than 70% of them are new businesses

1.1.3 The domains of Fintech

Fintech is a vast and complicated field that is difficult to comprehend There have been certain recurring issues within fintech over the last decade that encompass multiple different sectors within finance and banking Despite various types and classifications of fintech, it can be divided into six domains: capital raising, deposit and lending, enterprise financial software, investment management, market providing, and payments

Firstly, capital raising Capital raising entails giving clients access to investments and raising funds

in exchange for equity or interest rates This domain is subdivided into two sections: alternative financing and crowdsourcing

- Alternative finance, which is aimed at small and medium-sized businesses, refers to creative methods of raising capital that don't use typical incumbent financial institutions

- Crowdfunding focuses on assisting businesses and entrepreneurs in raising funds for new goods, projects, or social initiatives

Secondly, deposits and lending They are focused on personal services such as loans, financial management, and saving It is divided into three subdomains

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- Personal finance: assisting people and households in budgeting and managing their financial decisions and activities

- Electronic banking: an interactive online tool, which may be used by customers to pay bills, transfer payments, and have access to checking and savings accounts

- Alternative lending: complement the others by focusing on giving clients with credit ratings and peer-to-peer loans without referring them to established financial institutions.Thirdly, enterprise financial software It refers to software or IT solutions designed for the financial industry Corporate finance software may also be divided into three categories

- Collaboration and workflow software is cloud-based solutions and platforms that improve internal communication and process efficiency

- Accounting and invoicing software assists financial organizations in reducing the amount of time and resources spent on accounting and invoicing

- Data and analytics software assists financial institutions in combating fraud, security concerns, and cybercrime

Fourthly, investment management, services which assist private and institutional investors in the purchase, sale, and management of assets and securities

- Private investment management refers to automated procedures and trading algorithms provided to private investors, or other tools to trade and manage their investments

- Institutional investment management is concerned with tools and technology that help institutional customers, such as professional investors or hedge funds, and investment institutions manage their investment portfolios

Fifthly, market supply Market supply is divided into two categories: comparison and matchmaking, which are online aggregator platforms that enable clients to locate and compare financial goods and services Then there are financial social networks, which focus on the use of social networks to allowcontact between buyers and sellers as well as to demonstrate financial literacy and inclusion.Sixthly, payment In terms of investment interest, this is the most popular domain Payment services include payment back-end infrastructure, card issuing, merchant acquiring, mobile payment, seamless solutions and point-of-sales solution Payment processing companies, electronic payment systems, point-of-sale terminals, card providers, and mobile payments are all included Consumer payments include mobile wallets and seamless payment solutions that allow payers to pay on the move, as well as peer-to-peer money transfers Moreover, cryptocurrency, providing access to digital cryptocurrency markets such as Bitcoin, is used for payments and is quickly gaining popularity Cryptocurrency is a type of cryptocurrency that is not governed by a central body and is stored and traded using specialized software and mobile applications Although cryptocurrency has minimal inherent worth, several nations are using it as a means of exchange, storage, and measurement of value due to its near-perfect security, ease, and speed

In conclusion, fintech can be classified into six domains: capital raising, deposit and lending, enterprise financial software, investment management, market provision, and payments

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1.2 The Banking industry

1.2.1 Definition of Banks

A bank is a financial institution regulated at the federal level, state level or both The primary role of banks is to take deposits and make loans, but banks can offer a wide range of products and services, including:

- Deposit accounts (checking accounts, savings accounts, CDs, money market accounts)

- Loans, including mortgage loans, auto loans and personal loans

1.2.2 How Banks operate

Banks, whether brick-and-mortar institutions or online, manage the flow of money between people and businesses More specifically, banks offer deposit accounts that are secure places for people to keep their money Banks use the money in deposit accounts to make loans to other people or

businesses

In return, the bank receives interest payments on those loans from borrowers Part of that interest is then returned to the original deposit account holder in the form of interest—generally on a savings account, money market account or CD account Banks primarily make money from the interest on loans and the fees they charge their customers

These fees can be tied to specific products, such as bank accounts or related to financial services Forexample, an investment bank that offers portfolio management to investors can charge a fee for that service Or, a bank may collect an origination fee when granting a mortgage loan to a homebuyer

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1.2.3 The Banking sector in Vietnam

Business results increased over the same period Despite the impact of the pandemic, the banking industry's profits still grew at a high rate, with more than a dozen banks recording trillions in profit, asset quality, and bad debt ratio were still well controlled According to FiinGroup data, total operating income in the first quarter increased 28.4 percent year-on-year At the beginning of July, a number of banks announced business results with a strong breakthrough, forecasting many new records in the profit picture of the banking industry

The introduction of a new policy That is the close attention and direction of the State Bank (SBV), ministries and agencies for the development of substantive credit growth of the banking sector and issued Circular No 03/2021/TT - The State Bank of Vietnam on structuring the repayment term and exempting loan interest due to the impact of the Covid-19 epidemic

The banking group recorded stories of capital issuance and sale of subsidiaries to foreign countries

In the midst of the outbreak of the epidemic, which almost foreign investors withdrew from the stockmarket, and strong net selling, foreign investors still saw opportunities in asset transactions of banks.Typically, VPbank sold 49% of Fecredit's capital to a Japanese corporation, another plan in the futurelike HDbank to also sell credit to foreign banks

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Non-credit finance continued to increase In the context of the epidemic, in the first 6 months of

2021, the banking group continued to sharply increase the size and proportion of service fee income and non-interest income such as customer guarantees, letter of credit (LC) guarantees, payment of credits, and payment orders non-cash payment, linking with insurance companies to cross-sell products (Bancassurance), securities This helps commercial banks develop more comprehensively,

no longer depending on credit norms, while minimizing risks and improving revenue structure towards sustainability

CHAPTER 2 FINTECH INNOVATIONS AND THE IMPACT ON THE BANKING SECTOR

IN VIETNAM 2.1 The Covid-19 impact on Vietnam Fintechs and Banks

In contrast to some conventional areas, the financial technology (fintech) business witnessed remarkable development following the Covid-19 pandemic because of the emergence of new technological waves The COVID-19 pandemic alters worldwide consumer expectations and behavior, spurring continued innovation in the way people engage with financial services, increasing the adoption of novel digital financial solutions

Fintech Vietnam has evolved dramatically as a result of increased digital transaction usage, the growth of the e-commerce sector, and government backing for the spread of digital payment forms.The Covid-19 pandemic, according to McKinsey Global Management and Consulting Group (USA),has expedited the worldwide digital transformation process by several years The global fintech market is predicted to reach $325.3 billion by 2030 as a result of the expansion of digital payments, blockchain investment, and the exponential growth of e-commerce platforms Southeast Asian countries consider that there is still a great deal of opportunity for fintech development after Singapore has eclipsed India and China to grab the fourth spot on the list of the world's leading Fintech countries and lead Asia in 2021 (Findexable, 2021) 2021 is also a year of great development for Vietnam's fintech sector, with the internet economy valued at 21 billion USD, placing 70th globally and 14th in Asia (Google, 2021) As a result, in recent years, the Vietnamese fintech industry has demonstrated enormous potential when contributing to Southeast Asia's commonmarket share with Singapore and Indonesia The Vietnamese fintech sector is becoming increasingly diverse, with several businesses such as digital banking, e-wallets (E-wallet), pre-paid post-paid, andmobile payments

Digital banking is drawing international investment with the objective of catching up with the global digital economy and building a cashless society in Vietnam Fintech startups and banks collaborate together to deliver excellent products and services, improved benefits, and cost savings to clients Customers, for example, may now access more banking services via the Internet and mobile devices rather than travelling directly to the bank Vietnam's digital banks have recognized trends and taken ground-breaking measures For example, Timo Bank has launched an online bank account using the eKYC online client identification solution, or has invested in a cloud platform to build a core bank incollaboration with Mambu In 2021, VPBank will formally introduce the all-powerful digital banking platform VPBank NEO, which will be an update from the existing VPBank Online e-banking application, with significant technological, convenience, and cost-free benefits Users are completely satisfied Vietcombank has also synced the login account to the mobile app and website; synchronized the transaction limit of the DigiBank VCB app with the VCB DigiBank website; and integrated loan and investment insurance features

Attracting investment in the Fintech area has also experienced tremendous rise in recent years In

2019, Vietnam placed second in the ASEAN area in terms of attracting investment in the Fintech sector, according to a research by three organizations: PricewaterhouseCoopers (PwC), United Overseas Bank (UOB), and Singapore Fintech Association Furthermore, investment in the Fintech industry in Vietnam amounted for 36% of total investment in the ASEAN area (second only to Singapore at 51%) in 2017, while this figure was just 0.4% in 2018 In 2019, the Vietnamese Fintechmarket recorded the third and first biggest transactions in the ASEAN area, with a fundraising round

of $300 million USD for VNPay and $500 million USD for MoMo According to Forbes Magazine,

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the Vietnamese Fintech business garnered record investments in 2020, drawing a total of around 7.8 billion USD in venture money.

Fintech is critical to long-term post-pandemic economic recovery and prosperity Fintech solutions can help consumers and companies maintain and expand access to financial services

2.2 Issues in traditional banking systems leading to fintech revolution in Vietnam

2.2.1 Availability

Traditional banking systems require customers to visit bank branches for any kind of services, such

as depositing money, lending funds, transferring money, or even simple services like checking account balance, etc This may be inconvenient and time-consuming for many customers Traditional banks operate within specific office times and days and customers can only visit the banks during this time Customers must therefore wait until the following office day or hour if they have concerns outside of these times or days

2.2.2 Operational issues

Banks need to establish offices in areas that are both spacious and convenient for customers Besides,operating bank branches requires a big number of staff as well as competent administration Traditional banks depend heavily on their human element As a result, service levels may differ from one branch to another For instance, some locations might offer more financial advisors or bilingual representatives than others

Although traditional banks offer face-to-face customer service, they sometimes take a long time to resolve customer complaints because the procedure requires a series of paperwork to process which can be time-wasting

2.2.3 Cost of transaction

Traditional banks charge a fee for a variety of financial services (ATM maintenance, balance checking, money transfer, etc.) and these charges can add up overtime

Money transfer fee of some banks in Vietnam:

Bank Transfer fee at ATM Transfer fee at

VCB Digibank: free

BIDV Under 10 mil VND:

0.02% money transfer(min 10.000 VND, max 50.000 VND)

BIDV Smart Banking: free

Vietinbank Under 30 mil VND:

Vietinbank iPay: free

MB Bank 3.000

VND/transaction

Under 500 mil VND:

10.000 VND/transactionOver 500 mil VND:

0,02% money transfer(max 1.000.000 VND)

MB Bank: free

Techcomba

nk 0.035% money transfer (min 20,000

VND, max 1.000.000 VND)

Techcombank Mobile: free

2.3 Fintech trends, innovations and leading companies in Vietnam

2.3.1 Fintech market trends in Vietnam

2.3.1.1 Significant growth in Vietnam Fintech market

Fintech began to expand significantly in Vietnam in 2017 thanks to the government fintech regulatory framework and sandbox which not only provide a clear guideline for fintech activities in Vietnam but also incentivise firms to operate in the country

The fintech industry in Vietnam has grown exponentially over the last five years, mainly thanks to the rising popularity of e-wallets and digital payment in everyday life

- The transaction value digital payments segments of of the fintech sector in Vietnam

reached US$11,607 million in 2020 and will increase rapidly to reach US$18,172 million

in 2022 This number was predicted to increase to 26,378 million US dollars in 2025 (Vietnam Fintech Market 2020)

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- Along with the increase in transaction value, the number of users of the fintech sector in

Vietnam increased rapidly through the years, accounting to reach over 70 million users in

2025, which will triple the 2017 figure

- The number of companies in the Fintech field in Vietnam has increased by nearly 330%

in the period 2012-2020 (from 33 companies to 141 companies in 2020)

This shows that, although the Fintech sector in Vietnam is growing in the early stages of development, this field has received significant attention due to the government's active support for innovation, helping Vietnam become an attractive investment destination, full of potential for

foreign investors

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2.3.1.2 Digital payment is the leading segment

Digital payment has been the largest segment within the fintech landscape, accounting for 31% of Vietnamese fintech companies

While a series of industries are heavily affected by the Covid-19 epidemic, E-payment (electronic payment) has the opportunity to make a remarkable breakthrough

The common services offered by such e-wallet or payment platforms include transfer money, pay foronline transactions, like bill paying and utility bills, and point-of-sale transactions through wireless transactions from mobile, food delivery, ride hailing, etc

According to a Visa survey, 85% of Vietnamese consumers have at least one e-wallet or payment app

on their devices Some 71% use these apps at least once a week

E-wallet is also rated to be the most preferred payment method for online purchases among Vietnamese respondents, as indicated by 38 percent of them (Data from Statista)

This seems reasonable since most mobile shopping apps in Vietnam collaborated with a mobile payment app (E-wallet) or developed their own financial services which not only offer many discounts for the buyers but also the convenience For example, Shopee collaborated with Shopee Pay, Lazada with Zalo Pay, Baemin with Momo and Zalo Pay.

2.3.2 Fintech innovations in Vietnam

2.3.2.1 Blockchain

Blockchain is a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction

is added to every participant’s ledger

Vietnam provides a favorable FinTech environment that expands Blockchain technology, with the significant increase in Fintech enterprises and government’s regulations to promote innovation and development of the Fintech sector

The advantages of blockchain have contributed to promoting the Fintech ecosystem around traditional services “Blockchain will change the future of banking, for example, making international money transfers fast, enabling faster and simpler peer-to-peer transactions, and more efficiency for both businesses and consumers Blockchain also helps to increase security and reduce fraud, as this technology creates clear audited and reconciled data.” (Mr Phan Duc Trung - Vice President of Vietnam Blockchain Association)

Some of the main areas for Blockchain deployment in Fintech include:

2.3.2.2 Artificial Intelligence (AI)

Artificial Intelligence (AI) in fintech solutions can generate great value such as:

- Increased security driven by authentication: AI increases financial security through speech, face, and fingerprint authentication Compared to standard passwords, this extra security makes it more difficult for hackers to exploit

- Behavior-based investment predictions: AI enables data patterns to be automatically recognized, examined, and modified Furthermore, even with imperfect data quality, artificial intelligence in fintech may still offer insightful forecasts about exchange rates, investments, and short- or long-term trends Several finance apps with AI backing now examine historical and current data about businesses and their stocks Additionally, they assist investors in determining which stocks are suitable for investment and which would be

a poor choice

- Automated data processing: Every Fintech or Banking business is familiar with the complexities of managing conventional back-end operations By using AI, these organizations can automate these procedures with agility

- Human-like interaction with customers:AI has revolutionized the fintech industry, enabling innovative solutions like chatbots, robo-advisors, fraud detection systems, and more The advanced AI chatbots that go beyond first-generation rule-based chatbots can now respond to

a wide range of domain-specific bespoke inquiries, which leads to a deeper knowledge of client interactions Fintech organizations can renew their identity on the digital scene and getmore leads thanks to personalized and speedy communication

Examples of Fintech companies using AI

- On June 25, 2021, the app “Mofin” officially launched in the insurance - financial market This application is developed based on an AI algorithm capable of analyzing user information, transforming this information into an information base for them to participate infinancial and insurance products

- On June 30, 2021, MoMo e-wallet had completely acquired all intellectual property rights ofPique (formerly NextSmarty), a provider of artificial intelligence solutions In 2021, MoMo'srepresentative said that it will continue to recruit to triple the number of AI personnel related

to data and data science, in order to transform MoMo into a truly AI-first company

2.3.2.3 Gamification

Gamification is one of the best fintech innovations

It is a design-based approach that uses game elements like personal scorecards or awards to engage users in performing certain activities These games enable clients to track their spending patterns through events or progress bars, while also offering positive feedback for making wise financial decisions

Fintech companies in Vietnam are gamifying their services and products, investing in gamification and combining gamification with blockchain technology

Momo is now leading the gamification trend of Vietnamese fintechs